NetApp coughs up $128m to close over-charging case

Gets US Gov off its back

NetApp has formally agreed to pay $128m to the US General Services Administration to end over-charging accusations relating to US government agencies' purchases of NetApp products and services.

The GSA was owed the best discounts offered by NetApp to its private sector clients under the Price Reduction Clause Provisions terms of a NetApp-GSA contract. A whistleblower, former NetApp Federal Systems Operations Manager Igor Kapuscinski, filed a suit against NetApp on behalf of the US government under the False Claims Act, in 1996. A prolonged investigation followed, leading up to the payment agreement. The agreement refers to the August 1997 - February 2005 period, after which NetApp sales to the US government were handled by a third party.

In an SEC 8K form filing, NetApp stated it had entered into a settlement agreement with the US government, and: "agreed to pay the United States $128.0 million, plus interest accruing at a rate of 3 per cent per annum from February 18, 2009 through the date on which the payment is actually made."

This payment releases NetApp from the claims made by the US Department of Justice (DOJ) and: "reflects neither an admission nor denial by NetApp of any of the claims alleged by the DOJ, and represents a compromise to avoid continued litigation and associated risks."

NetApp is leading a field here, as this happens to be: "the largest contract fraud settlement the General Services Administration (GSA) has obtained to date." It is not alone though, as EMC is now facing roughly similar claims under the False Claims Act.

So, let's get this straight, a NetApp Federal Systems Operations Manager, a person we can expect to be intimately associated with NetApp's government agency sales practices, says NetApp is over-charging its US government customers, and files a suit against the company. NetApp continues with the federal sales practices Kapuscinski thought were wrong for another eight years. Thirteen years after he filed suit - 13 years! - NetApp ends the legal case at a cost of $128m plus its own legal bills, but admits nothing, not even regret.

A US DOJ spokesperson drops a heavy, heavy hint of what the DOJ thinks, thundering: "This settlement shows that the United States will not tolerate misconduct in the pricing of government contracts."

Kapuscinki's legal firm, Ashcraft & Gerel, was more forthright still and stated: "According to settlement papers released today, Network Appliance, Inc., which was in a contract with the GSA beginning in February 1996, did not give the Government accurate and complete data about the discounts offered to commercial customers, nor did it afford the Government an opportunity to achieve its most favoured customer status."

Vincent McKnight, Kapuscinski's lawyer, said: "Mr. Kapuscinski is an amazingly courageous man; he saw a company program out of sync with designated federal guidelines and decided to make it right." And gambled he might get richer too, as did McKnight no doubt.

Kapuscinski will receive a 15 per cent share, $19.2m, from the NetApp money. That's the way to treat whistleblowers, especially considering that this episode on Kapuscinski's CV will render him virtually unemployable by any private or public enterprise. When be blew his whistle he blew his employment prospects to hell and beyond, too. ®